Something good about higher marginal tax brackets

[jdw_fire]

I was exposed to an unexpected mix of topics today that gave way to an interesting idea. It started this morning with all the talk of another large bank bonus. Then as I was listening to a Paulsen interview that was discussing the reasons for the near collapse of our economy I happened to look at a FIRE and Money thread on IRA conversion to Roth and read "Thanks for posting that document of historical income tax rates - it's hard to imagine there having been a 94% tax bracket at one point! That would put a damper on my motivation to earn more." And wow a thought crossed my mind that before then was totally against how i thought about taxes. Up until then i was against higher taxes and all for tax reductions but the thought was that maybe higher (very much higher at the top end of the scale) tax rates on the higher income earners was a good thing. Let me explain, from what i have heard the main reason we got so close to a financial melt down was the greed of people in the financial industry, it got totally out of hand. So when i read "it's hard to imagine there having been a 94% tax bracket at one point! That would put a damper on my motivation to earn more" the thought that came to mind was we could have used that with those out of control greedy financial people. So maybe we need that now to prevent (or at least discourage) that type of greedy behavior in the future. And it would have the added benefit of collecting some revenue to combat our debt (but that is just a side "benefit"). I havent given this a great deal of thought and i would like to hear everyones thoughts on the subject as a part of me would like this not to be a good idea.

[haha]

[jdw_fire]

Quote:

Originally Posted by haha

dont know what that means, how bout you use words instead of smilies

[NW-Bound]

Quote:

Originally Posted by jdw_fire ...the thought that came to mind was we could have used that with those out of control greedy financial people.

I hate these bastards as much as anyone else. But it would be far better to keep them from earning outrageous amounts in the first place using what I consider illicit means.

Just taxing the hell out of them will not stop the problem. They will "steal" even harder if the loopholes are not closed. They would still be rich, and all the heavy taxing means a greater and greater portion of the nation's wealth ends up in Uncle Sam's hands.

Sorry, but I prefer the wealth of the nation to remain in the hands of the people, not the bureaucrats and politicians in Washington. You've got to fix the problem at the roots. For example, no more subprime loans to people with undocumented and inflated incomes, bundled into CDOs sold to naive investors. No more bail-outs. Stop the thieves by locking up the cookie jar, not by sharing in their loots.

[jdw_fire]

Quote:

Originally Posted by NW-Bound I hate these bastards as much as anyone else. But it would be far better to keep them from earning outrageous amounts in the first place using what I consider illicit means.

i dont hate them, or anyone for that matter, my thought is that if we deincentivize (sp) greed maybe we get less of it

Quote:

Originally Posted by NW-Bound Just taxing the hell out of them will not stop the problem. They will "steal" even harder if the loopholes are not closed. They would still be rich, and all the heavy taxing means a greater and greater portion of the nation's wealth ends up in Uncle Sam's hands.

i dont have a problem with people being rich, i just was thinking that if massive income was deincentivized maybe we wouldnt have as big a problem as we had earlier

Quote:

Originally Posted by NW-Bound Sorry, but I prefer the wealth of the nation to remain in the hands of the people, not the bureaucrats and politicians in Washington.

actually so do i

Quote:

Originally Posted by NW-Bound For example, no more subprime loans to people with undocumented and inflated incomes, bundled into CDOs sold to naive investors. No more bail-outs. Stop the thieves by locking up the cookie jar, not by sharing in their loots.

ok that fixes the past problem but what about any future 1?


my thought here is that if we deincentivize large incomes maybe we minimize the effects of greed

[NW-Bound]

I do not hate rich people either, only the ones that get rich by stealing, in my view. That includes not just people in the mortgage industry that caused us this mess, but various CEOs in different industries who ruin the companies they run, bankrupt their shareholders and lay off the workers while awarding themselves big salaries.

I do not hate Warren Buffet. I dislike Bill Gates for certain reasons, none of which has to do with the fact that he is rich.

Deincentivizing high incomes may have the effects of reducing the drive for people to work hard. Our high-tech industries are still leading the world. Why take the risk to change it, to turn this country into another socialist European nation?

[Texas Proud]

I don't know when it was 94%.... but when I was doing taxes back in the 80s it was high... but the highest you had to pay on EARNED income was 50%... so unless you change that... no disencentive...


Also, for people like these... I do not think they will be disencentived... they like the game... the power.


I think all companies that dealt with AIG should have had a haircut... even up to 50%... would have saved a lot of our money and that would have made the people who bought the insurance think a bit about how good it really was... individuals would not have lost anything...

GM should not have been given to the unions... this was political payback...

Well, lot of other things... but that is getting into political discussion which I want to stay out....

But I don't think it would make that big of a difference and hurt everybody else who earn big dollars legitimately....

[ziggy29]

Keep in mind that the obscenely high tax brackets were very rarely ever paid out because there were a plethora of deductions and loopholes to shield most income from taxation.

The significant reduction of top tax brackets in the Reagan era also came with the closing and expiration of the vast majority of these writeoffs.

[Zathras]

What would help deincentivize behavior like that is actually letting the companies go bankrupt.
Without consequences, why would anyone avoid high risk?
Increasing taxes on 'uberwealthy' not only takes away part of the reward for greedy people, but also for hard workers, innovators, etc.
No, I think the way to go is 99% fewer loopholes in the tax code, a lower tax rate and a simpler tax system.

[jdw_fire]

Quote:

Originally Posted by Zathras What would help deincentivize behavior like that is actually letting the companies go bankrupt. Without consequences, why would anyone avoid high risk?

i agree

Quote:

Originally Posted by Zathras Increasing taxes on 'uberwealthy' not only takes away part of the reward for greedy people, but also for hard workers, innovators, etc.

i think you have mistaken the "uberwealthy" with the very high income people. when i think of high income people i think of CEOs of (and other high ranking people in) large publicly held companies and pro sports players, both of which, i have heard arguments from mutliple people, make too much money. so maybe deincentivizing the paying of such salaries isnt such a bad thing.

when it comes to the "hard workers", how many of them have a very high income except the people selling things like the CDOs and CDSs which got us into the problem we just went thru? and this is exactlly the group from whom i want to remove the reward.

when it comes to "innovators" if you are talking about the invention of something that is produced and then sold, the inventor probably has a company that is building and selling said product and the inventor becomes "uberwealthy" by owning the company when the value of the company rises, not from huge salaries. so i dont think this would be such a disincentive to invention as you are concerned about, provided CG taxes are kept reasonable.

Quote:

Originally Posted by Zathras No, I think the way to go is 99% fewer loopholes in the tax code, a lower tax rate and a simpler tax system.

i am all for a simpler tax code and, per ziggy, would be required for higher marginal rates on very high incomes to work as the disincentive i have suggested.

[Independent]

Quote:

Originally Posted by jdw_fire I was exposed to an unexpected mix of topics today that gave way to an interesting idea. It started this morning with all the talk of another large bank bonus. Then as I was listening to a Paulsen interview that was discussing the reasons for the near collapse of our economy I happened to look at a FIRE and Money thread on IRA conversion to Roth and read "Thanks for posting that document of historical income tax rates - it's hard to imagine there having been a 94% tax bracket at one point! That would put a damper on my motivation to earn more." And wow a thought crossed my mind that before then was totally against how i thought about taxes. Up until then i was against higher taxes and all for tax reductions but the thought was that maybe higher (very much higher at the top end of the scale) tax rates on the higher income earners was a good thing. Let me explain, from what i have heard the main reason we got so close to a financial melt down was the greed of people in the financial industry, it got totally out of hand. So when i read "it's hard to imagine there having been a 94% tax bracket at one point! That would put a damper on my motivation to earn more" the thought that came to mind was we could have used that with those out of control greedy financial people. So maybe we need that now to prevent (or at least discourage) that type of greedy behavior in the future. And it would have the added benefit of collecting some revenue to combat our debt (but that is just a side "benefit"). I havent given this a great deal of thought and i would like to hear everyones thoughts on the subject as a part of me would like this not to be a good idea.

I've thought the same thing. At one time we said we didn't want income tax rates to become too high because that we discourage talented people from working harder. At some point, it stops being talent and hard work and becomes gambling with other people's money. That's something I'm not afraid to discourage.

On a related topic, Obama's budget has a line for changing the treatment of "carried interest". That's the item that allows hedge fund managers (among others) to pay 15% tax on their fees by treating them as capital gains instead of earned income.

[Gone4Good]

The problem with using the tax code to de-insentivize greedy bankers is that it impacts everyone else too. The tax code is a pretty blunt tool.

Far better, in my view, is to regulate the hell out of the banks to make them boring and stable and less of a casino for the employees. Once that happens pay will come down. And then our best and brightest will have to find their fortunes doing something else . . . like building something productive.

[Martha]

We could take some lessons from Canada on how to keep your banking system stable.

[Gone4Good]

Quote:

Originally Posted by Texas Proud I don't know when it was 94%....

Briefly in 1944 & 45. But it's been above 60% for the majority of the 20th century.

[haha]

Increasing marginal tax rates is about the most roundabout and least effective way there could possibly be to take risk out of our financial system.

But I bet you would make a lot of tax lawyers and accountants very, very happy.

I sometimes wonder where some of the ideas floated around here come from. Mars? Russia?

Ha

[unclemick]

I'm thinking something non-monetary - like water boarding til the Norwegian widow gets her dividends restored.

I know. I know. Sour grapes.

But how about checking with Buffett and his pay system for BRK's companies?

Performance tied to book value?

heh heh heh - We gonna let the board's of directors get off scot free? Where's the fiduciary responsibility there. Yes I 'm a Boglehead. Sort of. .

[audreyh1]

Quote:

Originally Posted by Zathras What would help deincentivize behavior like that is actually letting the companies go bankrupt. Without consequences, why would anyone avoid high risk?

The company going bankrupt doesn't seem to disincentive those folks taking the excessive risk as they are long gone with their short-term profits by the time their scheme finally blows up.

This sad fact is what so surprised Alan Greenspan himself!

Audrey

[NW-Bound]

The only solution is to strip then cane these bastards in a public square!

Or let Uncle Mick use their naked butts as practice targets for his plastic BB gun.

[kumquat]

Quote:

Originally Posted by Martha We could take some lessons from Canada on how to keep your banking system stable.

Well, here are some views by Canadians about this.

[Independent]

Quote:

Originally Posted by . . . Yrs to Go The problem with using the tax code to de-insentivize greedy bankers is that it impacts everyone else too. The tax code is a pretty blunt tool. Far better, in my view, is to regulate the hell out of the banks to make them boring and stable and less of a casino for the employees. Once that happens pay will come down. And then our best and brightest will have to find their fortunes doing something else . . . like building something productive.

Not exactly "everyone else". I was thinking of a higher marginal rate that begins at $1 million of annual income. That's not "everyone else" in my neighborhood.

I have trouble figuring out what collateral harm that would do. Would Peyton Manning decide he's going to become an accountant because he's paying a high marginal rate on his income over $1 million?

From a different perspective, I don't think it would hurt if some of the extremely bright people who have gone the Harvard-to-Wall Street route would have done something else.

But I have to admit these comments are a little tongue in cheek. It simply isn't going to happen. Your idea has at least a slim chance of becoming law. Figure out what financial activities are really capable of bringing down the whole system, regulate and insure them, then carve everything else away so we are regulating and insuring no more than necessary. I'm glad to see that Obama's willing to give Volcker a platform to argue that.